Apartment rents rose last year on demand from millennials from here who stayed here and others who came to Oklahoma to work, especially young professionals.
So said multifamily specialists in their 2011 year-end market summaries and 2012 forecasts. Millennials, also known as echo boomers, are people age 25-34, children of baby boomers born in the 1980s and early '90s. The demographic is booming.
Rent growth rate averages of 5.6 percent for one-bedroom apartments, 4.1 percent for two bedrooms and 4.3 percent for three bedrooms were “easily the most significant over the past two decades,” according to William T. Forrest and Eva M. Wills of CB Richard Ellis-Oklahoma.
Forrest and Wills estimated another 3 percent increase in rent on average across all size units this year as occupancy remains high. The average occupancy rate was an estimated 92 to 93 percent at year end, according to several market surveys.
In Oklahoma, millennials as a segment of the population grew 12.2 percent from 2000 to 2010, putting the state fifth in the nation for increases, said Mike Buhl of Commercial Realty Resources Co. in Norman. That statistic, from Advertising Age, is a predictor of economic growth, he said.
It also is a predictor of apartment construction. Buhl said he sees a direct correlation between where millennial populations here tend to grow and new projects along Memorial Road, downtown and not far from Chesapeake Energy Corp., a major millennial employer. This year will bring around 1,500 new apartment units to the Oklahoma City area, he said.
“Why is the millennial population growing? Oklahoma's job market suffered less than many other states during the economic downturn. The combination of career opportunities and affordable living is attractive. Young professionals are being drawn to Oklahoma and the ones who were born here are staying. And many of these millennials are choosing to be renters rather than homeowners,” Buhl wrote.
Renting is appealing
In the wake of the national housing bust and tightened mortgage standards, renting remains popular despite the rising cost. Oklahoma City's rent growth ranked 16th out of 82 markets tracked by Reis Inc. last year and seventh over the past three years, said broker Andy Burnett of Sperry Van Ness/William T. Strange & Associates.
Renting is attractive for several reasons, said David Dirkschneider, multifamily broker with Price Edwards & Co.
“With flat home values, larger down payments required and jobs requiring more flexibility, there is a more negative sentiment toward homeownership,” he said, Even as employment growth continues and young adults now living with their parents move out on their own, he said, “you will see a lot of these people moving into the rental marketplace.”
Occupancy rates and rents will continue to increase through 2013 to the highest levels in a decade or more, and annual apartment move-ins will total around 1,000 — more than twice the annual average in 1999-2011, according to Phoenix-based Hendricks & Partners, which has brokers Tim McKay in Oklahoma City and Aaron Hargrove in Tulsa. But then apartment absorption will trend down as single-family housing recovers from the national bust, the firm said.
Sales, prices rising
In the meantime, rising rent and occupancy will keep pushing up Class A and Class B apartment values and sales, aided by revival in private-sector lending, Dirkschneider said.
“Multifamily transactions are heavily driven by the lending community, and currently Freddie Mac and Fannie Mae have the lead in financing. We are, however, beginning to see insurance companies and the re-emergence of securitized lenders,” he said.
Local lenders have provided short-term financing for local buyers in most purchases of troubled properties and that trend will continue, Dirkschneider said, but better-quality stabilized properties will be bought by regional or national investors on longer-term notes.
Buhl counted 25 sales of apartment properties with 25 units or more in 2011 for a total of 4,144 units, up 15 percent from 2010. Total sales volume of $130.5 million was up 17.9 percent compared with the year before, and the average price per unit was $31,502, up 3 percent from 2010, Buhl said.
Dirkschneider counted 26 sales and calculated an average price of $29,947, which he said was a decline of 2.7 percent from 2010 — but noted that the marked increase in sales volume, after a three-year decline, was promising.
Forrest and Wills counted 12 sales of properties with more than 50 units, down from 20 in 2010 — with an average per-unit sales price of $13,632 for 1970s properties, $40,376 for 1980s vintage and $74,218 for apartments built since 1995.